I’m always surprised when I see what folks in other countries pay in taxes. In Ventura, CA, where I live the sales tax is 8.25%. A little lower than Mexico, a little higher than Canada. Any time one has to pay tax it’s annoying. Except My library closed last year. Then I realize that my taxes help pay for stuff I like. Californians hate to pay taxes.
Taxation policy: Spend-and-tax
Mar 30th 2011, 8:12 by Buttonwood
PREVIOUS posts looked at how governments raise money from income and property taxes. Consumption taxes are another important source of revenue. They are relatively easy to collect and harder to avoid; one can hide income but if you buy your goods at a supermarket, you will have to pay sales tax.
This table shows the percentage of GDP taken as taxes on goods and services. By and large, such taxes are regarded as regressive since they leave savings income untaxed. The poor spend the bulk of their income; the rich have spare funds to save.
Some economists, in contrast, like consumption taxes because they don’t distort incentives or behaviour. And they are happy for savings to be encouraged since that creates funds for investment, allowing the economy to grow over the long-term.
So the American number leaps out from this international comparison. There is, of course, no federal sales tax; this figure reflects the money collected by the states. If America wanted to close its deficit, this is the obvious place to start. Perhaps it would help drive America away from its consumption-led model. But it will probably be electoral suicide for any politician that proposes it. (Two further issues arise. Does competition between states help keep taxes down in this area? And is a a low take from a more regressive tax a quid pro quo for the greater inequality in incomes seen in America?)
Britain is below the OECD average on this measure although it does not reflect the recent rise in VAT. But Britain clearly raises more from the progressive taxes than the OECD average and less from this regressive levy (food is exempt from VAT, a measure designed to cushion the poor).
Eastern European counties seem to have a bigger bias towards consumption taxes. This may be because of their ease of use, but it still seems slightly odd for ex-communist nations. As you would expect, Scandinavian countries have higher-than-average takes from this area (they have higher taxes overall).
Why does all this matter, to answer a comment on the last post? Given the high sovereign debt levels, we may have moved from an era when politicians handed out goodies, in the form of tax breaks and spending plans, to one where they are generally inflicting pain. This will lead to a lot of disputes over whether different sections of the population are bearing their “fair share” pain. So it is worth looking at the taxes that have already been raised and seeing whether we are “all in this together”, to use a David Cameron phrase.
Later in the week, we will look at taxes on corporate profits, a particular area of contention. In addition, revenue/GDP is not the only ratio; we will also look at what proportion of total taxes comes from the various areas. Buttonwod on Taxes…